A Semi-Markov Modulated Interest Rate Model
AbstractIn this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive equations for the higher order moments of the discount factor and we describe a Monte Carlo al- gorithm to execute simulations. The results are specialized to classical models as those by Vasicek, Hull and White and CIR with a semi-Markov modulation.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1210.3164.
Date of creation: Oct 2012
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- Mamon, Rogemar S., 2002. "A time-varying Markov chain model of term structure," Statistics & Probability Letters, Elsevier, vol. 60(3), pages 309-312, December.
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- Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
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- Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
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